Data proves that international fund arbitrage, or market timing in international funds, has ended, MarketWatch reports.
Avi Nachmany of Strategic Insight, speaking at the Investment Management Consultants Association conference last week, said investors are currently “calm and satisfied” with mutual funds.
“A few years ago, investors were scared,” Nachmany said, referring to the eruption of the mutual fund late trading and market timing scandal, “in part because they didn’t know what was going on and who to trust.”
Today, redemptions are at their lowest level in 20 years and occurring at half the rate they were when the scandals came to light.
“What is out of the data now is the pool of abusive market timers, who represented a small number of fund owners but a huge amount of trading activity,” he said. “Clearly, many sector investors, who also tend to follow more active trading strategies, have moved to exchange-traded funds, also reducing the redemption activity.”
Obviously, the industry should have noticed that the arbitrage was going on, since the rate of redemptions in international funds in the late 1990s and early 2000s was about double that of domestic funds.
Today, however, Strategic Insight finds that redemptions in international and domestic funds are on par.